Ontario government’s ‘working people’ legislation will hurt working people

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Appeared in the Financial Post, June 22, 2023
Ontario government’s ‘working people’ legislation will hurt working people

At a recent Empire Club of Canada speech, Monte McNaughton, Ontario’s labour minister, expressed his belief that today the Conservatives are the party of blue-collar workers, particularly under Doug Ford’s leadership, before listing numerous regulatory initiatives of his government over the past few years including raising the minimum wage to $16.55 by October 2023 from the current $15.50.

Other measures include forcing employers to disclose their policies on workers’ “right to disconnect” from work, forcing companies to open their washrooms to delivery drivers and additional regulations for gig work, and a ban on “non-compete” clauses. It’s all part of “an agenda that involves a genuine and lasting shift of power to working people,” said the minister.

Unfortunately, it’s also an agenda based on economic error.

“The basic flaw in most systems of regulation,” explains Hoover Institution scholar Richard Epstein, “is you assume that if you restrict the opportunities of management, you help labour. But these are contractual arrangements and any time you hurt one side of the contract, it radiates through and it hurts the other side as well.”

This flaw pervades the Ford government’s regulatory agenda on labour. The government assumes—or at least hopes the voting public assumes—that restricting what businesses can do by mandating they pay a certain wage or provide certain benefits will ultimately help workers.

But the standard view in economics is that contracting parties—whether employer and worker, or consumer and producer, or some other arrangement—will structure their transactions to maximize their joint surplus, and the competitive process ensures some fair division of the surplus by preventing one side from benefiting excessively from the other.

There’s therefore no room for the government to improve worker welfare by dictating the terms of employment arrangements—not by dictating minimum wages nor forcing employers to provide certain benefits (such as no restrictions on employees immediately moving to competitors, as in the case of the ban on non-compete clauses).

The one exception to this rule might be in the case where employers have “monopsony” power, meaning an employer is the sole buyer of a certain type of labour and so market competition is not there to protect the workers. But this is nowhere the case in Ontario, particularly for the type of workers the government tries to “protect” with its regulation.

Notably, minimum wage legislation is meant to “protect” low-wage workers—those with the least skills and least experience—from exploitation. But the market for such workers is very competitive because they’re needed in many industries, and those industries are competitive, while workers with highly technical and specialized skills (astronauts, for example) have fewer possible employers.

According to comprehensive literature reviews, far from protecting workers, minimum wage legislation has negative effects on employment, particularly for the lowest-skilled workers. Legislation that mandates a minimum provision of benefits similarly destroys jobs. Inescapably, reducing the joint economic surplus of employment arrangements means less employment will take place.

Thus the push for expanded labour regulation should not be the future of conservatism nor any political movement looking to benefit workers. To be fair, the Ontario government’s list of measures to help workers does include one beneficial policy: recognizing international credentials for immigrants. The rest of the agenda, unfortunately, is deleterious.

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